Calif. W.C. Reforms Signed Into Law

The bill, according to the governor, will reduce costs for employers and improve care for injured workers.

Nicole Mahrt, director of public affairs for the Washington-based American Insurance Association, called the reform package "responsible, not politically expedient."

"It recognizes the need for healthy competition in the private insurance market," she said, adding that the package restores "predictability and consistency" to the worker's compensation system.

"Passage of this legislation is a major victory for our clients and for our agents and brokers," said Jerry O'Kane, chief executive officer for the Insurance Agents & Brokers of the West, based in Pleasanton, Calif. "Passage of this legislation will result in major and long-overdue reform of the workers' comp system."

"Conceptually, this is what we were looking for," said Sam Sorich, president of the Association of California Insurance Companies and vice president, Western regional manager for the Des Plaines, Ill.-based Property Casualty Insurers Association of America.

As pleased as the industry representatives were with the legislation, the representatives were also cautious. Mr. Sorich noted that the workers' comp plan still has to go through a review by the state's Workers' Compensation Insurance Rating Bureau, the Division of Worker's Compensation, and workers' comp judges to see what the actual savings ends up being.

It will not be until mid-May before the WCIRB has figures on the savings from this law, said Jack Hannan, a spokesperson for the Board.

A set of revisions to the system that passed last fall is expected to yield between $4.1 billion and $4.8 billion in savings for the state's $21.2 billion workers' comp market, he said.

Insurance Commissioner John Garamendi said savings from the new law would be slow to materialize and that some aspects of the bill would take two years to implement.

AIAs Ms. Mahrt agreed. "It is critical that all stakeholders understand that, in several respects, this legislation creates entirely new procedures and provisions," she said, noting that it will take "some time for experience to develop before we can truly understand their impact on the system."

She added that "a major overhaul of the workers' compensation system such as this is likely to spur litigation over key provisions, which can impact the effectiveness of the legislation in reducing costs."

While the reforms are "significant and quantifiable," said Mr. O'Kane, "we are cautioned by the fact that previous reforms only dampened the upward cost spiral" of workers' comp costs.

One group not totally satisfied with the outcome of the legislation was the California Labor Federation, whose spokesperson, Nathan Ballard, called the reforms a "mixed bag" for employees.

"The deck was stacked against injured workers from the beginning, because you have a popular governor who is taking money from the same special interests who want to reduce injured workers benefits," he said.

Workers do receive some benefits from the reforms, such as immediate treatment of injuries without a delay for an employer's investigation, pre-designation of a doctor in the plan, and the ability of union's to negotiate integration of health insurance and disability coverage, Mr. Ballard said.

However, he said, the only way to solve the workers' comp crisis in the state is the re-regulation of premiums and commissions.

"It is the only way to stop the wild price fluctuations that started this crisis in the first place," he said.

He said the Labor Federation would work to see legislation passed that would reintroduce some re-regulation the governor would support.

"Gov. Schwarzenegger should realize that it's deregulation that caused this mess," Mr. Ballard noted. "The system was working when there was a degree of regulation."

As for its immediate impact on rates, that will be determined after the rate review by the rating bureau on April 29th, said Mr. O'Kane. But any significant impact of the reforms on rates would not be felt for years to come.

In the meantime, the associations have begun work talking to carriers to gauge their interests in returning to the state whose major workers' comp insurer is its state fund.

"We have every intention of talking to companies who have left and some who have an interest in coming in," said Mr. O'Kane.

Reproduced from National Underwriter Edition, April 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.